By Tom Arnold, Alexander Cornwell and David Milliken
Sharp swings in global financial markets in the last week are not worrying since economic growth is strong, but reforms are still needed to avert future crises, the managing director of the International Monetary Fund has said.
Christine Lagarde, speaking at a conference on global business and social trends in Dubai, said economies were also supported by plenty of financing available.
“I’m reasonably optimistic because of the landscape we have at the moment. But we cannot sit back and wait for growth to continue as normal,” she said in her first public comments on market movements since the latest round of turmoil at the end of last week.
“I‘m ringing not the alarm signal, but the strong encouragement and warning signal,” Ms Lagarde said.
Global stock markets were hit by wild fluctuations, with the US benchmark S&P 500 tumbling 5.2% last week, its biggest weekly percentage drop since January 2016. The volatility was fuelled by investor worries about rising interest rates and potential inflation.
Ms Lagarde repeated an IMF forecast, originally issued last month, that the global economy would growth 3.9% this year and at the same pace in 2019, which she said was a good backdrop for needed reforms.
She did not give details of the reforms she wanted to see beyond saying authorities needed to move to regulation of activities, not entities.
“We need to anticipate where the next crisis will be. Will it be shadow banking? Will it be cryptocurrencies?” she said.
Meanwhile, the Bank of England has said that it is likely to need to raise interest rates again to tackle inflation but will not do so aggressively.
The UK’s central bank raised interest rates for the first time in over a decade in November, and financial markets now see a roughly 70% chance of a further 25 basis point increase in May, which would take the Bank of England’s main rate to 0.75%.
Any interest rate rises over the coming year would be minor, the bank’s chief economist Andy Haldane was quoted as saying at the weekend.